Thursday, May 17, 2012

That's the journey of a former Ikea worker in Spain, who used to deliver and assemble furniture for the mega furniture retailer but now does the same thing as part of the informal economy, offering his services to people who exit the big box store. He was laid off by the massive retailer, and now makes half as much as he used to earn, but it's off the books.

Flea markets are flourishing, too. Patricia Aragon Llamas, 31, shows up
every weekend at the Charco de la Pava market to earn about €50 selling
second-hand clothing and shoes.“This market has doubled in size in the past year,” she said. “I’ve got a
3-year-old child and an unemployed husband, so I’m really beyond
thinking about what’s legal or not, as long as it brings in a bit more
money.”

According to The International Herald Tribune, the amount of tax money the Spanish government may be losing to System D could amount to €37 billion -- or $47 billion US.

But that shouldn't be the major concern. People's survival should be. As I reported a few weeks back, Spain has turned into Europe's developing world economy, with an economic outlook that is worse than Nigeria's. Now the official world is recognizing the fact.

“Without the underground economy, we would be in a situation of probably
violent social unrest,” Robert Tornabell, a professor and former
dean of the Esade business school in Barcelona, told the IHT. “A lot of people are now
staying afloat only thanks to the underground economy, as well as the
support of their family network.”

Another professor who has studied the parallel economy in Spain suggests that the government needs to work with it: “Much of the informal economy is nothing but the normal reaction of
low-skilled people who have no alternative once they lose their job,” said Michele Boldrin, an economics professor at Washington University in
Saint Louis, Missouri, who co-authored a study in May on Spain’s
underground economy on behalf of Fedea, an economic research group in
Madrid. “What the government should focus on is reforming the formal
economy to make it more efficient and competitive rather than focus on
pursuing such people.”

But the people in the IHT article are not necessarily low-skilled. And reforming the economy takes a stimulus, not austerity. In the absence of sensible government, System D is the way forward. If the people will lead, the leaders must follow.

Monday, May 14, 2012

Some interesting tweets from ITV News Business Editor Laura Kuenssberg, who's been covering developments regarding Greece and the Euro from, I believe, the London Stock Exchange ...

Traders there reckon 'grey market' in drachmas could get going in a couple of days
— Laura Kuenssberg (@ITVLauraK) May 14, 2012

That's interesting: people are already planning for active trade in a former currency that hasn't been reconstituted yet--the Greek drachma. All it would take is a couple of days for the underground to get it started. Talk about a System D opportunity.

If enough people think drachma may return, it becomes a commodity - traders expect it'd be 1500 drachmas to 1 euro, they joined at 350 to 1
— Laura Kuenssberg (@ITVLauraK) May 14, 2012

Wednesday, May 9, 2012

By the numbers, Ghana's a mind-blowing success. This West African nation's GDP has almost tripled since 2005--an astonishing achievement. Yet this article from The Ghanaian Chronicle (via AllAfrica) points out, workers had little to cheer this past May Day, because, as the country's top labor leader put it, ""The reality is that the unprecedented growth rate has failed to create decent jobs for Ghanaians. Joblessness is on the rise. Nearly all new jobs are being created in the
informal economy, where incomes are low and workers have very little
protection from the country's labour laws."

President John Evans Atta Mills told the paper that the country had met all the fundamental requirements of the International Labour
Organisation, and now stands to receive substantial rewards from the
international community in Ghana's effort to achieving decent conditions and rights for workers.

But what does that mean? Aid instead of trade?

Robust job creation in the informal economy is not the problem. Indeed, it's the way forward to sustainable growth--economic growth that means jobs for people and a better life for the widest possible swathe of the population.

Tuesday, May 8, 2012

Carpooling laws in Jakarta have spawned a new business -- jockeying, or filling the seats in fancy cars so they meet the multi-passenger requirement. This Australian news dispatch [thanks to eagle-eyed Zach C. for catching it and sending it to me] shows how it works:

Hundreds of men, women and children line the main arteries of the
Indonesian capital every weekday, offering to ride in private vehicles
during rush hours, when cars are obliged to carry at least three
passengers on key stretches. The
"jockeys" -- as they are known -- do not stick out their thumbs like
typical hitchhikers around the world. Here, one finger signifies a
jockey working solo, while two offers a pair, usually a mother with a
child in tow or a baby in a batik sling. In a
country where millions are struggling to climb out of poverty and into
an expanding middle class the jockeys -- who charge about a dollar a
ride -- have turned their services into a career.

Meanwhile, the carpooling requirements, meant to cut down on traffic, have had no effect. Indeed, 1,000 additional cars join the cacophony on the city's streets every day--and projections are that in two years time Jakarta's streets could become completely gridlocked, with cars not able to move at all at rush hours.

Back in the 80s, in his book The Other Path, Peruvian economist HernandoDe Soto promulgated the idea that what System D/the informal sector needs is for governments to trim the bureaucracy and make it easy to start businesses. If that happened, de Soto opined, businesses would naturally come in from the cold.

But, as this case study of Rwanda from East African Business Week shows, in the real world, things seldom work the way de Soto thought they would. In Rwanda, it only takes 6 hours to register a business--and the process is free if you do it online. Yet these 'free market' reforms have had no impact. The size of the country's informal sector has not declined. It still makes up 90 percent of the nation's economic activity.

To make formalization even more easy, Rwanda has just approved a new plan that allows businesses with a turnover of less than $20,000 to pay $200 or less in taxes. That's an income tax rate of just 1 percent. Even so, the Commissioner General of the Rwanda Revenue Authority, Ben Kagarama, admits that the new rules "might not necessarily kill the culture of tax evasion" and that he doesn't expect most businesses to sign up.

So what gives?

As the article notes, informal merchants are routinely harassed, brutalized, and arrested by the authorities. In other words, their sole experience of government power is repressive and corrupt. Indeed some people argue that many governments in the developing world are little more than officially licensed thuggish protection rackets.

In countries like Rwanda, System D is the most productive sector of the economy. Politicians need to take concrete steps to build partnerships with informal markets and System D merchant associations. That's how government becomes a legitimate player in the business sphere--by working with System D rather than trying to force businesses to conform to some abstract rules of formality. When System D businesspeople--who are the backbone of the economy--see the government provide concrete benefits to their markets, that's when they will get involved in a positive way in social and political change.

Monday, May 7, 2012

Junks, faux markets and bend-down boutiques: The Guardian reports on the Africa's burgeoning trade in European cast-offs. Critics say the billion-dollar trade risks swamping fragile domestic
textiles markets--and 12 African nations have banned the trade. But the desire for famous designer clothes is not limited to the west, and in urban Africa's thriving System D stalls, customers rub the hems of Gucci and D&G seconds. Money quote:

"We call our shops 'bend down' boutiques because we have so many
clothes we just pour them on the floor and you just bend down and
select," explained Mercy Azbuike, surrounded by piles of clothes
overflowing from her wooden shack and piled into wheelbarrows outside. "Even
those selling clothes in boutiques [proper stores] are buying from us,"
said Azbuike, who also travels to neighbouring Benin twice a month to
replenish her stock."It's the same boutique but you don't have to bend down so it's more expensive."

Wednesday, May 2, 2012

It's well-heeled residents vs. a single food truck on W. 68th Street in NYC. DNA Info reports that some people living in the tony condos there are so angry that a licensed food truck is doing business legally on their block that they've petitioned the city to install parking meters.

The Pot Luck Cafe food truck--co owned by Korean War Vet Eddie Prokopiak and his Nigerian son-in-law Joseph Okolie--has been doing business near the corner of 68th and Broadway for about year. Prokopiak was on the waiting list for a city street food vending license for a decade before getting the go-ahead to open the truck. He spent perhaps $100,000 to outfit his business.

But this lone outpost of street culture on the block has locals feeling "besieged." According to the report, "residents accuse Pot Luck Cafe of creating litter and flashing a bright
neon "Open" sign in its window. They also say the truck takes up too
much space and created a dangerously tight squeeze when emergency
vehicles responded to an oil spill on the block last year." They also assert that the operators have refilled their generator on the street, in violation of city rules.

Prokopiak is philosophical about the residents who are moving to evict his truck. "They don't want us here," he told DNA Info last year. "It's an upscale neighborhood, supposedly, and this type of vehicle is not supposed to be here."

The parking meter proposal, meanwhile has split the block, with 18 residents opposing the idea at a recent community board meeting.

As Bob Dylan so aptly put it Subterranean Homesick Blues back in 1965: "Don't follow leaders. Watch the parking meters."

About Me

I spent most of the past four years hanging out with street hawkers, smugglers, and sub-rosa import/export firms to write Stealth of Nations, a book that chronicles the global growth of System D--the parallel economic arena that today accounts for half the jobs on the planet.
Prior to that, I lived in squatter communities across four continents to write Shadow Cities, a book that attempts to humanize these vibrant, energetic, and horribly misunderstood communities.
My articles on cities, politics, and economic issues have appeared in many publications, including Harper's, Scientific American, Forbes, Fortune, The Nation, The New York Times, The Washington Post, Metropolis, and City Limits. Before becoming a reporter, I worked as a community organizer and studied philosophy. I live in New York City and do most of my writing on manual typewriters.